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Math v Word: Prediction Markets and The Niggling Quirks of Decentralization!

Not to belabour the point, but one of the many advantages of decentralization is that it solves the issue of trust by taking away power from centralized parties and replacing them with a decentralized consensus model with checks in place to punish malicious actors. Augur is perhaps the first DApp with the potential to redefine prediction markets. Anyone can create markets and anyone can participate in them.

Augur and Veil, which is a 0x based exchange layer built upon Augur have been test beds for fledgling markets in everything from sports to politics, and even standard dystopian fare such as presidential assassination markets.

Source: predictions.global
Source: app.veil.co

However, the transition from the abstract to the concrete has not exactly been smooth, both from the perspective of UI as well as that of functionality. Key issues have surfaced around conflict resolution and ambiguity. In the case of centralized prediction markets, ambiguity and conflicts are unilaterally resolved by the company that creates the markets. If you do not agree with the interpretation of an outcome with your centralised betting exchange you can always take them to court where presumably, folks trained in interpreting such ambiguity in the written word can attempt to make a decision based on the context, as well as precedence. Who plays the equivalent role in a situation where ‘code is law’, which higher court shall settle disputes resulting from ambiguous interpretation of events that are determined at their end point in the austere math of code but are defined in the beginning in the inevitable ambiguity of the spoken word.

Both in the case of Augur and Veil, human interpretation errors are leading to invalid outcomes and resulting in people who have bet on the right outcomes losing money.

For example, a few months ago, one of the markets that garnered a fair bit of attention was “who would control the House after the midterm elections?” and the wagerers had a binary choice between the Democrats and the Republicans. Crucially, the event resolution was set to one day after the day of the election. When the results were out, Democrats gained 40 seats and were the dominant party in the House. So, ideally you’d expect bettors who predicted Democrats to control the House to win. However, if you were to ignore the spirit behind the market created and go solely by the words in the market’s description on their face value, Republicans would be the right answer because the newly elected House representatives would only be officially elected into the House a few weeks after the midterm elections date. So, for the period between the election date and the date when newly elected members were sworn in, technically Republicans were the dominant party in the House. That sounds awfully absurd, but is a natural outcome of people trying to game the system and undermine the spirit behind the betting market contract.

These ambiguous markets always end up with people betting on the losing side coming out on top because once the market is deemed invalid, the total money at stake is equally distributed among all the participants. Augur plans to address this issue of invalid markets in its upcoming summer upgrade. This is also a reminder that there is a lot of work yet to be done for DApps to fully displace centralized applications. It also points to the fiendishly difficult task of designing DApps – it is a proper mix of a range of skills from economics to law to finance to technology.

You can deep dive more into this subject on this thread on twitter by @richardchen39.

Oh btw, Skilling from Enron is back. This just landed in our inboxes, presenting the screenshots au naturel…

Meanwhile in Crypto Wonderland….

“Ex-Enron CEO to Venture Into Crypto” Former Enron Corp Chief Executive Jeffrey Skilling has been holding meetings with former Enron executives and others, hoping to win backing for a new energy venture, the Wall Street Journal reported on Friday. People familiar with the matter told the Journal the venture is a digital platform connecting investors to oil and gas projects and is at an early stage.

“Bitmain’s IPO Filing Set to Expire” Chinese crypto mining giant Bitmain’s filing to list its initial public offering (IPO) on the Hong Kong Stock Exchange (HKEx) will seemingly reach the end of its six-month expiration window today, as a crypto community member has noted in a tweet posted on March 25. As the South China Morning Post has previously outlined, HKEx listing rules provide a six-month window for a given application to proceed to a closed-door hearing before its Listing Committee. The Committee is tasked with giving the final approval or disapproval of the offering; should an applicant fail to hear a response within this time frame, the listing formally lapses.

“Bitcoin Expected to Surpass Facebook” The Winklevoss twins – Tyler and Cameron believe that Bitcoin and cryptocurrencies, in general, will eventually become bigger than social media giant; Facebook. These comments come as a renewed wave of optimism among cryptocurrency bulls begins to emerge with prices gaining significant ground after a difficult year which saw declines of more than 80 percent. For Tyler, BTC’s added utility of facilitating payments across the Internet gives it a profound edge over social media platforms, especially in the context of the emerging digital economy.

“Crypto Case Hearing to Happen This Week in India”The four-week window that the Indian supreme court has given the government to come up with crypto regulation is coming to an end. According to the court’s Advance List, the crypto case is listed for March 29. Meanwhile, the community is ramping up efforts to bring about positive crypto regulation and the end of the banking ban imposed by the central bank.

Crypto Twitter Pick

What We’re Reading / Listening To

The Valuation Depot at Kana and Katana
Dharma – The Easiest Place to Borrow and Lend Cryptocurrency—with Nadav Hollander

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